EQUITY
GROWTH AND
INCOME
FUND
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1994
Insurance Management Series
[LOGO] FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
458043502
G00843-01 (2/95) [RECYCLE LOGO]
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Investor:
I am pleased to present your Annual Report for Equity Growth and Income Fund
(the "Fund"), a portfolio of Insurance Management Series. This report covers the
period from December 9, 1993 (the Fund's start of business) to December 31,
1994. The report begins with an investment review by the Fund's portfolio
manager, followed by the Fund's Portfolio of Investments and Financial
Statements.
The Fund is managed to help your investment grow in value and pursue income
through a diversified portfolio of high quality stocks. Many of these stocks are
issued by companies whose names you may recognize--and whose products you may
use every day. At the end of the report period, these companies included Eastman
Kodak, Ford, Mattel, Avon, Chrysler, GM, Reebok, Sears, Bristol Myers, GE, and
AT&T.
At the end of the report period, total net assets in the Fund stood at $2.4
million. Dividends paid to shareholders over the report period totaled $0.19 per
share. The Fund's net asset value stood at $9.74 on the last day of the report
period.
We look forward to keeping you informed about your investment in the Fund and
welcome your questions, comments, or suggestions.
Sincerely,
[SIGNATURE LOGO]
J. Christopher Donahue
President
February 15, 1995
EQUITY GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
ANNUAL REPORT FOR FISCAL YEAR ENDED DECEMBER 31, 1994
MANAGEMENT DISCUSSION AND ANALYSIS
---------------------------------------------------------------------------
From the start of performance on February 10, 1994 through December
31, 1994, the total return of Equity Growth and Income Fund (the "Fund")
was (0.70%)*. This compares with (2.08%) for the Standard & Poor's 500
Index ("S&P 500") and (2.25%)** for the Lipper Growth and Income Funds
Average ("LGIFA") over the same period.
We believe the major reason that the Fund outperformed both the S&P
500 and the LGIFA during this period was the Fund's overweighting in the
Technology sector, which performed well in 1994. However, partially
offsetting this was the Fund's overweighting in the Finance sector, which
performed poorly due to the rapid rise in interest rates caused by the
Federal Reserve Board (the "Fed").
It is possible that we will experience a further boost in short term
interest rates in early 1995. However, we believe that U.S. economic growth
will eventually slow in 1995, and that a "soft landing" is possible. In
this environment, earnings could rise between 10% and 12% in 1995. By any
historic measure (such as absolute dividend yields, price to book ratios or
trailing price to earnings ratios) the market is by no means inexpensive.
However, if the economy slows without going into recession, these levels of
valuation are sustainable. We believe that this is a plausible scenario,
but given the fact that the markets will be "fighting the Fed," investors
should be prepared for higher levels of volatility in 1995 than they saw in
1994. The Fund's management believes that this environment offers
opportunities, but also calls for increased selectivity.
Current areas of emphasis in the Fund's portfolio include the
Technology and Consumer Durables sectors. In Consumer Durables, the auto
stocks appear extremely attractive due to low valuations and continued
strong earnings gains. The Fund currently holds both Chrysler and Ford. In
Technology, defense related companies appear inexpensive and continue to
cut cost and improve margins. The Fund currently holds Martin Marietta,
Raytheon, and Rockwell International. The Fund continues to be
underweighted in the Utility and Consumer Services sectors.
*Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
**The index is unmanaged.
EQUITY GROWTH AND INCOME FUND
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GROWTH OF $10,000 INVESTED IN EQUITY GROWTH AND INCOME FUND
The graph below illustrates the hypothetical investment of $10,000 in the
Equity Growth and Income Fund (the "Fund") from February 10, 1994 (start of
performance) to December 31, 1994, compared to the Standard and Poor's 500 Index
(SP 500)+ and the Lipper Growth and Income Funds Average (LGIFA)++.
"Graphic representation "A" omitted. See Appendix."
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
*The Fund's performance assumes the reinvestment of all dividends and
distributions. The SP 500 and the LGIFA have been adjusted to
reflect reinvestment of dividends on securities in the index and
average.
+The SP 500 is not adjusted to reflect sales loads, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance.
The index is unmanaged.
++The LGIFA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling into the
respective categories, and is not adjusted to reflect any sales loads. However,
total return is reported net of expenses or other fees that the SEC requires to
be reflected in a fund's performance.
EQUITY GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
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<TABLE>
<CAPTION>
SHARES VALUE
<S> <S> <C>
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCKS--88.7% --------------------------------------------------------------------------------------
<S> <S> <C>
BASIC INDUSTRY--9.1%
---------------------------------------------------------------------------------------
600 Eastman Chemical Co. $ 30,300
---------------------------------------------------------------------------------------
1,000 FMC Corp. 57,750
---------------------------------------------------------------------------------------
1,000 Lubrizol Corp. 33,875
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900 Phelps Dodge Corp. 55,687
---------------------------------------------------------------------------------------
2,000 Praxair, Inc. 41,000
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Total 218,612
--------------------------------------------------------------------------------------- ------------
CONSUMER DURABLES--8.6%
---------------------------------------------------------------------------------------
1,100 Chrysler Corp. 53,900
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900 Eastman Kodak Co. 42,975
---------------------------------------------------------------------------------------
1,600 Ford Motor Co. 44,800
---------------------------------------------------------------------------------------
2,600 Mattel, Inc. 65,325
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Total 207,000
--------------------------------------------------------------------------------------- ------------
CONSUMER NON-DURABLES--5.6%
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600 Avon Products, Inc. 35,850
---------------------------------------------------------------------------------------
1,300 Reebok International, Ltd. 51,350
---------------------------------------------------------------------------------------
800 Philip Morris Cos., Inc. 46,000
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Total 133,200
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CONSUMER SERVICE--4.7%
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1,800 American Stores Co. 48,375
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1,400 Sears Roebuck & Co. 64,400
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Total 112,775
--------------------------------------------------------------------------------------- ------------
ENERGY--10.6%
---------------------------------------------------------------------------------------
1,600 Baker Hughes, Inc. 29,200
---------------------------------------------------------------------------------------
1,300 Chevron Corp. 58,012
---------------------------------------------------------------------------------------
1,000 Mapco, Inc. 51,250
---------------------------------------------------------------------------------------
</TABLE>
EQUITY GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS--CONTINUED
<CAPTION>
- ----------------------------------------------------------------------------------------------------
ENERGY--CONTINUED
---------------------------------------------------------------------------------------
1,000 Texaco, Inc. $ 59,875
---------------------------------------------------------------------------------------
2,100 USX Marathon Group 34,388
---------------------------------------------------------------------------------------
600 Western Atlas, Inc. 22,575
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Total 255,300
--------------------------------------------------------------------------------------- ------------
FINANCE--10.9%
---------------------------------------------------------------------------------------
1,100 Bank of Boston Corp. 28,463
---------------------------------------------------------------------------------------
600 Citicorp 24,825
---------------------------------------------------------------------------------------
1,000 Dean Witter Discover & Co. 33,875
---------------------------------------------------------------------------------------
400 First Interstate Bancorp. 27,050
---------------------------------------------------------------------------------------
1,100 Mellon Bank Corp. 33,688
---------------------------------------------------------------------------------------
1,000 Nations Bank Corp. 45,125
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1,200 Providian Corp. 37,050
---------------------------------------------------------------------------------------
1,000 Travelers, Inc. 32,500
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Total 262,576
--------------------------------------------------------------------------------------- ------------
HEALTH CARE--8.1%
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800 American Home Products Corp. 50,200
---------------------------------------------------------------------------------------
800 Becton Dickinson & Co. 38,400
---------------------------------------------------------------------------------------
900 Bristol Myers Squibb Co. 52,087
---------------------------------------------------------------------------------------
1,300 U.S. Healthcare, Inc. 53,625
--------------------------------------------------------------------------------------- ------------
Total 194,312
--------------------------------------------------------------------------------------- ------------
]INDUSTRIAL/MANUFACTURING--11.4%
---------------------------------------------------------------------------------------
550 Caterpillar, Inc. 30,319
---------------------------------------------------------------------------------------
600 Deere & Co. 39,750
---------------------------------------------------------------------------------------
900 General Electric Co. 45,900
---------------------------------------------------------------------------------------
1,200 Litton Industries, Inc. 44,400
---------------------------------------------------------------------------------------
600 Loews Corp. 52,125
---------------------------------------------------------------------------------------
</TABLE>
EQUITY GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS--CONTINUED
<CAPTION>
- ----------------------------------------------------------------------------------------------------
]INDUSTRIAL/MANUFACTURING--CONTINUED
---------------------------------------------------------------------------------------
1,200 Textron, Inc. $ 60,450
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Total 272,944
--------------------------------------------------------------------------------------- ------------
TECHNOLOGY--12.8%
---------------------------------------------------------------------------------------
1,500 General Motors Corp., Class E 57,750
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600 Hewlett Packard Co. 59,925
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400 International Business Machines 29,400
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1,200 Martin Marietta Corp. 53,250
---------------------------------------------------------------------------------------
900 Raytheon Co. 57,488
---------------------------------------------------------------------------------------
1,400 Rockwell International Corp. 50,050
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Total 307,863
--------------------------------------------------------------------------------------- ------------
TRANSPORTATION--1.7%
---------------------------------------------------------------------------------------
1,800 Ryder Systems, Inc. 39,600
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UTILITIES--5.2%
---------------------------------------------------------------------------------------
1,100 AT&T Corp. 55,275
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500 Duke Power Co. 19,062
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600 Enron Corp. 18,300
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1,800 MCI Communications Corp. 33,075
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Total 125,712
--------------------------------------------------------------------------------------- ------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $2,129,605) 2,129,894
--------------------------------------------------------------------------------------- ------------
PREFERRED STOCKS--1.6%
- ----------------------------------------------------------------------------------------------------
FINANCE--0.5%
---------------------------------------------------------------------------------------
600 Citicorp, Pfd., 8.25% 11,475
--------------------------------------------------------------------------------------- ------------
CONSUMER NON-DURABLES--1.1%
---------------------------------------------------------------------------------------
4,600 RJR Nabisco Holdings, Pfd., Series C 27,600
--------------------------------------------------------------------------------------- ------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST, $40,715) 39,075
--------------------------------------------------------------------------------------- ------------
</TABLE>
EQUITY GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
*REPURCHASE AGREEMENTS--50.6%
- ----------------------------------------------------------------------------------------------------
<S> <S> <C>
$ 400,000 B.T. Securities, Ltd., 5.85%, dated 12/30/94, due 1/3/95 $ 400,000
---------------------------------------------------------------------------------------
400,000 Deutsche Bank Capital Corp., 6.05%, dated 12/30/94, due 1/3/95 400,000
---------------------------------------------------------------------------------------
415,000 J.P. Morgan Securities, Inc., 6.05%, dated 12/30/94, due 1/3/95 415,000
--------------------------------------------------------------------------------------- ------------
TOTAL REPURCHASE AGREEMENTS (AT AMORTIZED COST) 1,215,000
--------------------------------------------------------------------------------------- ------------
TOTAL INVESTMENTS (IDENTIFIED COST, $3,385,320) $ 3,383,969+
--------------------------------------------------------------------------------------- ------------
</TABLE>
* Repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investments in repurchase agreements are through participation in joint
accounts with other Federated funds.
+ The cost for federal tax purposes amounts to $3,388,038. The net unrealized
depreciation of investments on a federal income tax basis amounts to $4,069,
comprised of $33,749 appreciation and $37,818 depreciation at December 31,
1994.
Note: The categories of investments are shown as a percentage of net assets
($2,400,030) at December 31, 1994.
(See Notes which are an integral part of the Financial Statements)
EQUITY GROWTH AND INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ----------------------------------------------------------------------------------------------------
Investments in repurchase agreements $ 1,215,000
- --------------------------------------------------------------------------------------
Investments in other securities 2,168,969
- -------------------------------------------------------------------------------------- ------------
Total investments, at amortized cost and value
(identified cost, $3,385,320 and tax cost, $3,388,038) $ 3,383,969
- ----------------------------------------------------------------------------------------------------
Cash 2,466
- ----------------------------------------------------------------------------------------------------
Receivable for Fund shares sold 69,934
- ----------------------------------------------------------------------------------------------------
Dividends and interest receivable 3,121
- ---------------------------------------------------------------------------------------------------- ------------
Total assets 3,459,490
- ----------------------------------------------------------------------------------------------------
LIABILITIES:
- ----------------------------------------------------------------------------------------------------
Payable for investments purchased 1,044,687
- --------------------------------------------------------------------------------------
Payable for Fund shares redeemed 69
- --------------------------------------------------------------------------------------
Accrued expenses 14,704
- -------------------------------------------------------------------------------------- ------------
Total liabilities 1,059,460
- ---------------------------------------------------------------------------------------------------- ------------
NET ASSETS for 246,391 shares of beneficial interest outstanding $ 2,400,030
- ---------------------------------------------------------------------------------------------------- ------------
NET ASSETS CONSIST OF:
- ----------------------------------------------------------------------------------------------------
Paid-in capital $ 2,415,073
- ----------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investments (1,351)
- ----------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (14,187)
- ----------------------------------------------------------------------------------------------------
Undistributed net investment income 495
- ---------------------------------------------------------------------------------------------------- ------------
Total Net Assets $ 2,400,030
- ---------------------------------------------------------------------------------------------------- ------------
NET ASSET VALUE, Offering Price, and Redemption Proceeds Per Share:
($2,400,030 / 246,391 shares of beneficial interest outstanding) $9.74
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
EQUITY GROWTH AND INCOME FUND
STATEMENT OF OPERATIONS
PERIOD ENDED DECEMBER 31, 1994*
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ------------------------------------------------------------------------------------------------------
Interest income $ 18,307
- ------------------------------------------------------------------------------------------------------
EXPENSES:
- ------------------------------------------------------------------------------------------------------
Investment advisory fee $ 4,397
- ------------------------------------------------------------------------------------------
Administrative personnel and services fee 73,288
- ------------------------------------------------------------------------------------------
Custodian and portfolio accounting fees 51,760
- ------------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 7,973
- ------------------------------------------------------------------------------------------
Legal fees 351
- ------------------------------------------------------------------------------------------
Auditing fees 260
- ------------------------------------------------------------------------------------------
Fund share registration costs 553
- ------------------------------------------------------------------------------------------
Printing and postage 6,414
- ------------------------------------------------------------------------------------------
Insurance premiums 3,936
- ------------------------------------------------------------------------------------------
Taxes 35
- ------------------------------------------------------------------------------------------
Miscellaneous 3,227
- ------------------------------------------------------------------------------------------ ----------
Total expenses 152,194
- ------------------------------------------------------------------------------------------
Deduct--
- ------------------------------------------------------------------------------------------
Waiver of investment advisory fee $ 4,397
- ------------------------------------------------------------------------------
Reimbursement of other operating expenses 144,632 149,029
- ------------------------------------------------------------------------------ ---------- ----------
Net expenses 3,165
- ------------------------------------------------------------------------------------------------------ ---------
Net investment income 15,142
- ------------------------------------------------------------------------------------------------------ ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis) (14,187)
- ------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (1,351)
- ------------------------------------------------------------------------------------------------------ ---------
Net realized and unrealized gain (loss) on investments (15,538)
- ------------------------------------------------------------------------------------------------------ ---------
Change in net assets resulting from operations $ (396)
- ------------------------------------------------------------------------------------------------------ ---------
</TABLE>
*For the period from December 9, 1993 (start of business) to December 31, 1994.
(See Notes which are an integral part of the Financial Statements)
EQUITY GROWTH AND INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1994*
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------------------------------
Net investment income $ 15,142
- -----------------------------------------------------------------------------------------
Net realized gain (loss) on investment ($11,469 net loss as computed for federal tax
purposes) (14,187)
- -----------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) on investments (1,351)
- ----------------------------------------------------------------------------------------- -----------------------
Change in net assets resulting from operations (396)
- ----------------------------------------------------------------------------------------- -----------------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (14,647)
- ----------------------------------------------------------------------------------------- -----------------------
FUND SHARE (PRINCIPAL) TRANSACTIONS--
- -----------------------------------------------------------------------------------------
Proceeds from sale of shares 3,287,097
- -----------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of dividends declared 7,346
- -----------------------------------------------------------------------------------------
Cost of shares redeemed (879,370)
- ----------------------------------------------------------------------------------------- -----------------------
Change in net assets from Fund share transactions 2,415,073
- ----------------------------------------------------------------------------------------- -----------------------
Change in net assets 2,400,030
- -----------------------------------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------------------------------
Beginning of period --
- ----------------------------------------------------------------------------------------- -----------------------
End of period (including undistributed net investment income of $495) $ 2,400,030
- ----------------------------------------------------------------------------------------- -----------------------
</TABLE>
*For the period from December 9, 1993 (start of business) to December 31, 1994.
(See Notes which are an integral part of the Financial Statements)
EQUITY GROWTH AND INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1994*
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- -----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------
Net investment income 0.19
- -----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.26 )
- ----------------------------------------------------------------------------------------- -------
Total from investment operations (0.07 )
- -----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.19 )
- ----------------------------------------------------------------------------------------- -------
NET ASSET VALUE, END OF PERIOD $ 9.74
- ----------------------------------------------------------------------------------------- -------
TOTAL RETURN** (0.70 %)
- -----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------
Expenses 0.54%(a)
- -----------------------------------------------------------------------------------------
Net investment income 2.58%(a)
- -----------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 25.42%(a)
- -----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $2,400
- -----------------------------------------------------------------------------------------
Portfolio turnover rate 32%
- -----------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from February 1, 1994 (date of initial
public investment) to December 31, 1994. For the period from December 9,
1993 (start of business) to January 31, 1994, the Fund had no investment
activity.
** Based on net asset value, which does not reflect the sale load or contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
EQUITY GROWTH AND INCOME FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Insurance Management Series (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-end management
investment company. The Trust consists of five diversified portfolios. The
financial statements included herein present only those of Equity Growth and
Income Fund (the "Fund"). The financial statements of the other portfolios are
presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--Listed equity securities are valued at the last sale
price reported on national securities exchanges. Unlisted securities and
short-term obligations (and private placement securities) are generally
valued at the prices provided by an independent pricing service. Short-term
securities with remaining maturities of sixty days or less may be stated at
amortized cost, which approximates value.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System or to have segregated within the
custodian bank's vault, all securities held as collateral in support of
repurchase agreement investments. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of
each repurchase agreement's underlying collateral to ensure that the value
of collateral at least equals the principal amount of the repurchase
agreement, including accrued interest.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to guidelines established
by the Board of Trustees (the "Trustees"). Risks may arise from the
potential inability of counterparties to honor the terms of the repurchase
agreements. Accordingly, the Fund could receive less than the repurchase
price on the sale of collateral securities.
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
Interest income and expenses are accrued daily. Bond premium and discount,
if applicable, are amortized as required by the Internal Revenue Code, as
amended (the "Code").
EQUITY GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its taxable income.
Accordingly, no provisions for federal tax are
necessary. At December 31, 1994, the Fund, for federal tax purposes,
had a capital loss
carryforward of $11,469, which will reduce the Fund's taxable income
arising from future net realized gain on investments, if any, to the extent
permitted by the Code, and thus will reduce the amount of the distributions
to shareholders which would otherwise be necessary to relieve the Fund of
any liability for federal tax. Pursuant to the Code, such capital loss
carryforward will expire in 2002.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
F. OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1994*
<S> <C>
Shares sold 334,265
- -----------------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 752
- -----------------------------------------------------------------------------------------
Shares redeemed (88,626)
- ----------------------------------------------------------------------------------------- ----------
Net change resulting from Fund share transactions 246,391
- ----------------------------------------------------------------------------------------- ----------
</TABLE>
* For the period from December 9, 1993 (start of business) to December 31, 1994.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
.75 of l% of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive its fee and reimburse certain operating expenses of the Fund.
The Adviser can modify or terminate this voluntary waiver and reimbursement at
any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with administrative personnel and services. Prior to March 1, 1994, these
services were provided at approximate cost. Effective March 1, 1994, the FAS fee
is based on the level of average aggregate daily net assets
EQUITY GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
of all funds advised by subsidiaries of Federated Investors on an annualized
basis. The administrative fee received during the period shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company
("FServ") serves as transfer and dividend disbursing agent for the Fund. The
FServ fee is based on the size, type, and number of accounts and transactions
made by shareholders.
ORGANIZATIONAL EXPENSES--Organizational expenses ($16,348) and start-up
administrative service expenses ($31,507) were borne initially by the Adviser.
The Fund has agreed to reimburse the Adviser for the organizational expenses and
start-up administrative expenses during the five year period following December
15, 1993 (date the Fund first became effective). For the period ended December
31, 1994, the Fund paid $1,090 and $2,100, respectively, pursuant to this
agreement.
Certain of the Officers and Directors of the Trust are Officers and Directors or
Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended
December 31, 1994 were as follows:
<TABLE>
<S> <C>
PURCHASES $ 2,401,227
- ---------------------------------------------------------------------------------------------------- ------------
SALES $ 216,607
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Board of Trustees of the Insurance Management Series
and the Shareholders of EQUITY GROWTH AND INCOME FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Equity Growth and Income Fund (a portfolio of
the Insurance Management Series) as of December 31, 1994, the related statement
of operations, the statement of changes in net assets and financial highlights
for the period ended December 31, 1994. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of the securities owned as of December 31, 1994
by correspondence with the custodian and brokers; where replies were not
received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Equity Growth and
Income Fund as of December 31, 1994, the results of its operations, the changes
in its net assets and its financial highlights for the period ended in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 10, 1995
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. J. Christopher Donahue
William J. Copeland President
J. Christopher Donahue Richard B. Fisher
James E. Dowd Vice President
Lawrence D. Ellis, M.D. Edward C. Gonzales
Edward L. Flaherty, Jr. Vice President and Treasurer
Peter E. Madden John W. McGonigle
Gregor F. Meyer Vice President and Secretary
Wesley W. Posvar David M. Taylor
Marjorie P. Smuts Assistant Treasurer
G. Andrew Bonnewell
Assistant Secretary
</TABLE>
Mutual funds are not bank deposits or obligations, are not guaranteed
by any bank, and are not insured or guaranteed by the U.S. government,
the Federal Deposit Insurance Corporation, the Federal Reserve Board,
or any other government agency. Investment in mutual funds involves
investment risk, including possible loss of principal.
This report is authorized for distribution to prospective investors only
when preceded or accompanied by the Fund's prospectus which
contains facts concerning its objective and policies, management fees,
expenses and other information.
UTILITY
FUND
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1994
Insurance Management Series
[LOGO] FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
458043205
G00845-01 (2/95) [RECYCLE LOGO]
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present your Annual Report for Utility Fund (the "Fund"), a
portfolio of Insurance Management Series. This report covers the period from
December 9, 1993 (the Fund's start of business) to December 31, 1994. It begins
with an investment review by the Fund's portfolio manager, followed by the
Fund's Portfolio of Investments and Financial Statements.
The Fund is managed to help your investment grow in value and pursue income
through a diversified portfolio of utility stocks. During the report period, the
Fund paid $0.34 per share in dividends to shareholders. The Fund's net asset
value stood at $9.29 on the last day of the report period. At the end of the
report period, the Fund's total net assets stood at $974,170.
Regardless of the temporary interest rate environment, the Fund offers a
sensible way to invest over the long term. The entire country relies on the
services that utilities provide.
Thank you for choosing the Fund as a convenient way to tap the earning power of
utilities. Your questions and comments are always welcome.
Sincerely,
[SIGNATURE LOGO]
J. Christopher Donahue
President
February 15, 1995
UTILITY FUND
- --------------------------------------------------------------------------------
ANNUAL REPORT FOR FISCAL YEAR ENDED DECEMBER 31, 1994
MANAGEMENT DISCUSSION AND ANALYSIS
---------------------------------------------------------------------------
The bond markets experienced one of the worst years in decades. In
less than one year, we experienced dramatic shifts in the yield curve
prompted by the Federal Reserve Board's (the "Fed") February tightening.
While unpopular at the time, management believes the anticipatory actions
by the Fed could prove to be beneficial to both stocks and bonds over the
next few years, provided that the economy slows to a more sustainable
growth level without slipping into recession.
The utility sectors as measured by Standard and Poor's Ratings Group
("S&P") indices also had a difficult year, which is to be expected in the
face of a bear market in bonds, because investments in utility stocks are
highly correlated to interest rates. Within the utility sector, which
includes electrics, telephones, and natural gas, the electrics group is the
most sensitive to interest rates, because it is the most mature industry
within the sector with the least growth potential and the highest current
yields. This higher sensitivity to interest rates is the main reason why
the S&P Electrics Index (16.26%)* was down almost twice as much as the
telephone and natural gas dominated S&P Utilities Index (8.31%)* in 1994.
The Utility Fund's performance, however, was bested by the S&P 500 (1.27%)*
in 1994 because of the S&P 500's much lower 4% exposure to electrics.
The Utility Fund (the "Fund") (3.35%)** outperformed both the S&P
Electric Index (16.26%) and the S&P Utility Index (8.31%) in 1994. The
Fund's outperformance of the S&P Electric Index and the S&P Utility Index
can be attributed to the Fund's portfolio construction and security
selection.
Portfolio construction: In previous communications we have
noted that the performance of a "pure" utility fund will be largely
correlated with changes in interest rates. Interest rates tend to
be extremely volatile and in an effort to weaken the link between
the performance of the Fund and changes in interest rates,
management has committed between 20% and 30% of the portfolio to
convertible securities which management believes may in fact be
negatively correlated with interest rates (i.e., convertibles
perform well in a rising interest rate environment), or at least
less correlated with interest rates. In 1994, the Fund invested
approximately 30% of total assets in these convertible securities
which outperformed each of the utility sectors and contributed to
the Fund's outperformance.
Security selection: Management has been stressing the
importance of security selection and diversification in the utility
industry for the past four years. In 1994, there was
*These indices are unmanaged.
**Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
a substantial penalty for being in the wrong utility stocks. For
example, the Fund continued to employ its valuation discipline and
held investments in utilities with good managements, strong
financial flexibility (including below-average payout ratios),
reasonable regulatory environments, and a strong competitive
position. This strategy helped us to avoid the California and New
York utilities which dropped substantially following extremely
punitive rate recommendations. It also helped us avoid the
substantial down draft in the "high yield" utilities (i.e., those
with high payout ratios) following Florida Power and Light's
decision to cut its dividend. It was the avoidance of such
positions which helped the Fund outperform the indices from a
security selection standpoint.
Management believes the bulk of the bear market in bonds appears to be
behind us at this point in the economic cycle. The inflation numbers
continue to be favorable and the Fed's resolve to "fight inflation" will
help contain inflation fears. This neutral to favorable rate backdrop
coincides with an encouraging amount of pessimism regarding the utility
industries. The issues of competition are well known and well documented
and the surprise in the years ahead may in fact be positive. Investors may
realize that change will occur more slowly than originally anticipated and
some utilities may thrive in the new more competitive environment.
Finally, management believes the utility industry is in the midst of
changes which means a higher level of uncertainty as well as the potential
for greater opportunities for investors. The management of the Fund will
continue to invest opportunistically within the utility sector while also
attempting to reduce the interest rate risk of the Fund through the
selective use of convertible securities.
UTILITY FUND
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN THE UTILITY FUND
The graph below illustrates the hypothetical investment of $10,000 in the
Utility Fund (the "Fund") from February 10, 1994 (start of performance) to
December 31, 1994 compared to the Standard and Poor's 500 Index (S&P 500)+ and
the Standard and Poor's Utility Index (SPUX)+.
"Graphic representation "B" omitted. See Appendix."
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE, SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
*The Fund's performance assumes the reinvestment of all dividends and
distributions. The S&P 500 and the SPUX have been adjusted to reflect
reinvestment of dividends on securities in the indices.
+The S&P 500 and the SPUX are not adjusted to reflect sales loads, expenses, or
other fees that the SEC requires to be reflected in the Fund's performance.
These indices are unmanaged.
UTILITY FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCKS--61.6% -------------------------------------------------------------------------------------
<C> <S> <C>
UTILITIES--55.3%
--------------------------------------------------------------------------------------
500 AT&T Corp. $ 25,125
--------------------------------------------------------------------------------------
600 Baltimore Gas & Electric 13,275
--------------------------------------------------------------------------------------
600 BCE, Inc. 19,275
--------------------------------------------------------------------------------------
400 British Telecommunications ADR 24,050
--------------------------------------------------------------------------------------
800 Cinergy Corp. 18,700
--------------------------------------------------------------------------------------
700 CMS Energy Corp. 16,012
--------------------------------------------------------------------------------------
500 Consolidated Natural Gas Co. 17,750
--------------------------------------------------------------------------------------
800 DPL, Inc. 16,400
--------------------------------------------------------------------------------------
600 DQE, Inc. 17,775
--------------------------------------------------------------------------------------
500 Duke Power Co. 19,063
--------------------------------------------------------------------------------------
600 Enron Corp. 18,300
--------------------------------------------------------------------------------------
400 Enron Global Power Pipelines 8,800
--------------------------------------------------------------------------------------
600 Florida Progress Corp. 18,000
--------------------------------------------------------------------------------------
400 FPL Group, Inc. 14,050
--------------------------------------------------------------------------------------
600 General Public Utilities Corp. 15,750
--------------------------------------------------------------------------------------
500 GTE Corp. 15,187
--------------------------------------------------------------------------------------
600 Hong Kong Telecommunications ADR 11,475
--------------------------------------------------------------------------------------
300 Illinova Corp. 6,525
--------------------------------------------------------------------------------------
600 MCN Corp. 10,875
--------------------------------------------------------------------------------------
500 NIPSCO Industries, Inc. 14,875
--------------------------------------------------------------------------------------
400 NYNEX Corp. 14,700
--------------------------------------------------------------------------------------
1,000 Pacific Enterprises 21,250
--------------------------------------------------------------------------------------
1,200 Pacificorp 21,750
--------------------------------------------------------------------------------------
700 Peco Energy Co. 17,150
--------------------------------------------------------------------------------------
800 Pinnacle West Capital Corp. 15,800
--------------------------------------------------------------------------------------
</TABLE>
UTILITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS--CONTINUED
- ---------------------------------------------------------------------------------------------------
<C> <S> <C>
UTILITIES--CONTINUED
--------------------------------------------------------------------------------------
1,000 Sonat, Inc. $ 28,000
--------------------------------------------------------------------------------------
800 Southern Co. 16,000
--------------------------------------------------------------------------------------
400 Southern New England Telecommunications Corp. 12,850
--------------------------------------------------------------------------------------
500 Southwestern Bell Corp. 20,188
--------------------------------------------------------------------------------------
700 UGI Corp. 14,262
--------------------------------------------------------------------------------------
700 Utilicorp United, Inc. 18,550
--------------------------------------------------------------------------------------
600 Western Resources, Inc. 17,175
-------------------------------------------------------------------------------------- ------------
Total 538,937
-------------------------------------------------------------------------------------- ------------
ENERGY--0.9%
--------------------------------------------------------------------------------------
100 Mobil Corp. 8,425
-------------------------------------------------------------------------------------- ------------
HEALTHCARE--1.8%
--------------------------------------------------------------------------------------
600 Meditrust 18,150
-------------------------------------------------------------------------------------- ------------
MANUFACTURING--1.1%
--------------------------------------------------------------------------------------
600 Hanson, PLC ADR 10,800
-------------------------------------------------------------------------------------- ------------
RETAIL--2.5%
--------------------------------------------------------------------------------------
400 CBL & Associates Properties, Inc. 8,250
--------------------------------------------------------------------------------------
500 Simon Property Group, Inc. 12,125
--------------------------------------------------------------------------------------
300 South West Property Trust, Inc. 3,675
-------------------------------------------------------------------------------------- ------------
Total 24,050
-------------------------------------------------------------------------------------- ------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $602,659) 600,362
-------------------------------------------------------------------------------------- ------------
PREFERRED STOCKS--16.3%
- ---------------------------------------------------------------------------------------------------
800 Citicorp, Conv. Pfd., Series 15 15,300
--------------------------------------------------------------------------------------
300 Cointel, Telefonica de Argentina SA, Prides 15,900
--------------------------------------------------------------------------------------
200 Enserch Corp., Pfd./ARPS, Series E 17,900
--------------------------------------------------------------------------------------
200 Freeport McMoran, Inc., Conv. Pfd., Series 144A 9,450
--------------------------------------------------------------------------------------
600 James River Corp., Conv. Pfd. 12,150
--------------------------------------------------------------------------------------
400 Kaufman and Broad Home Corp., Conv. Pfd., Series B 5,350
--------------------------------------------------------------------------------------
</TABLE>
UTILITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS--CONTINUED
- ---------------------------------------------------------------------------------------------------
<C> <S> <C>
150 Niagara Mohawk Power Corp., Pfd., Series C, ARPS $ 3,544
--------------------------------------------------------------------------------------
200 Occidental Petroleum Corp., Conv. Pfd. 9,775
--------------------------------------------------------------------------------------
2,700 RJR Nabisco Holding, Conv. Pfd., Series C 16,200
--------------------------------------------------------------------------------------
300 Reynolds Metals Co., Conv. Pfd. 14,513
--------------------------------------------------------------------------------------
400 Sun America Inc., Conv. Pfd., Series D 14,700
--------------------------------------------------------------------------------------
1,800 Westinghouse Electric Corp., Pfd., Series C 24,075
-------------------------------------------------------------------------------------- ------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST, $164,578) 158,857
-------------------------------------------------------------------------------------- ------------
*REPURCHASE AGREEMENTS--28.7%
- ---------------------------------------------------------------------------------------------------
$ 140,000 J.P. Morgan Securities, Inc., 6.05%, dated 12/30/94, due 1/3/95 140,000
--------------------------------------------------------------------------------------
140,000 B.T. Securities, Ltd., 5.85%, dated 12/30/94, due 1/3/95 140,000
-------------------------------------------------------------------------------------- ------------
TOTAL REPURCHASE AGREEMENTS (AMORTIZED COST) 280,000
-------------------------------------------------------------------------------------- ------------
TOTAL INVESTMENTS (IDENTIFIED COST, $1,047,237) $ 1,039,219+
-------------------------------------------------------------------------------------- ------------
</TABLE>
+ The cost for federal tax purposes amounts to $1,048,231. The net unrealized
depreciation on a federal tax cost basis amounts to $9,012 which is comprised
of $7,123 appreciation and $16,135 depreciation at December 31, 1994.
* Repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreements are through participation in joint
accounts with other Federated funds.
Note: The categories of investments are shown as a percentage of net assets
($974,170) at December 31, 1994.
The following abbreviations are used in this portfolio:
ADR--American Depository Receipts
ARPS--Adjustable Rate Preferred Stock
PLC--Public Limited Company
(See Notes which are an integral part of the Financial Statements)
UTILITY FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ----------------------------------------------------------------------------------------------------
Investments in repurchase agreements $ 280,000
- ----------------------------------------------------------------------------------------
Investments in other securities 759,219
- ---------------------------------------------------------------------------------------- ----------
Total investments, at amortized cost and value
(identified cost, $1,047,237 and tax cost, $1,048,231) $ 1,039,219
- ----------------------------------------------------------------------------------------------------
Cash 1,037
- ----------------------------------------------------------------------------------------------------
Receivable for investments sold 30,088
- ----------------------------------------------------------------------------------------------------
Receivable for Fund shares sold 18,322
- ----------------------------------------------------------------------------------------------------
Dividend and interest receivable 3,213
- ---------------------------------------------------------------------------------------------------- ------------
Total assets 1,091,879
- ----------------------------------------------------------------------------------------------------
LIABILITIES:
- ----------------------------------------------------------------------------------------------------
Payable for investments purchased 100,142
- ----------------------------------------------------------------------------------------
Payable for Fund shares redeemed 29
- ----------------------------------------------------------------------------------------
Accrued expenses 17,538
- ---------------------------------------------------------------------------------------- ----------
Total liabilities 117,709
- ---------------------------------------------------------------------------------------------------- ------------
NET ASSETS for 104,906 shares of beneficial interest outstanding $ 974,170
- ---------------------------------------------------------------------------------------------------- ------------
NET ASSETS CONSIST OF:
- ----------------------------------------------------------------------------------------------------
Paid-in capital $ 993,053
- ----------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investments (8,018)
- ----------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (10,881)
- ----------------------------------------------------------------------------------------------------
Undistributed net investment income 16
- ---------------------------------------------------------------------------------------------------- ------------
Total Net Assets $ 974,170
- ---------------------------------------------------------------------------------------------------- ------------
NET ASSET VALUE, Offering Price, and Redemption Proceeds Per Share:
($974,170 / 104,906 shares of beneficial interest outstanding) $9.29
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
UTILITY FUND
STATEMENT OF OPERATIONS
PERIOD ENDED DECEMBER 31, 1994*
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ------------------------------------------------------------------------------------------------------
Dividend income $ 12,736
- ------------------------------------------------------------------------------------------------------
Interest income 2,123
- ------------------------------------------------------------------------------------------------------ ---------
Total investment income 14,859
- ------------------------------------------------------------------------------------------------------
EXPENSES:
- ------------------------------------------------------------------------------------------------------
Investment advisory fee $ 2,077
- ------------------------------------------------------------------------------------------
Administrative personnel and services fee 73,289
- ------------------------------------------------------------------------------------------
Custodian and portfolio accounting fees 44,384
- ------------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 8,328
- ------------------------------------------------------------------------------------------
Legal fees 1,105
- ------------------------------------------------------------------------------------------
Auditing fees 319
- ------------------------------------------------------------------------------------------
Fund share registration costs 549
- ------------------------------------------------------------------------------------------
Printing and postage 15,014
- ------------------------------------------------------------------------------------------
Insurance premiums 3,932
- ------------------------------------------------------------------------------------------
Taxes 28
- ------------------------------------------------------------------------------------------
Miscellaneous 4,468
- ------------------------------------------------------------------------------------------ ----------
Total expenses 153,493
- ------------------------------------------------------------------------------------------
Deduct--
- ------------------------------------------------------------------------------------------
Waiver of investment advisory fee $ 2,077
- ------------------------------------------------------------------------------
Reimbursement of other operating expenses 149,764 151,841
- ------------------------------------------------------------------------------ ---------- ----------
Net expenses 1,652
- ------------------------------------------------------------------------------------------------------ ---------
Net investment income 13,207
- ------------------------------------------------------------------------------------------------------ ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis) (10,881)
- ------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (8,018)
- ------------------------------------------------------------------------------------------------------ ---------
Net realized and unrealized gain (loss) on investments (18,899)
- ------------------------------------------------------------------------------------------------------ ---------
Change in net assets resulting from operations $ (5,692)
- ------------------------------------------------------------------------------------------------------ ---------
</TABLE>
*For the period from December 9, 1993 (start of business) to December 31, 1994.
(See Notes which are an integral part of the Financial Statements)
UTILITY FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1994*
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------------------------------
Net investment income $ 13,207
- -----------------------------------------------------------------------------------------
Net realized gain (loss) on investment ($9,887 net loss, as computed for federal tax
purposes) (10,881)
- -----------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) on investments (8,018)
- ----------------------------------------------------------------------------------------- -----------------------
Change in net assets resulting from operations (5,692)
- ----------------------------------------------------------------------------------------- -----------------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (13,191)
- ----------------------------------------------------------------------------------------- -----------------------
FUND SHARE (PRINCIPAL) TRANSACTIONS--
- -----------------------------------------------------------------------------------------
Proceeds from sale of shares 1,195,580
- -----------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of dividends declared 9,439
- -----------------------------------------------------------------------------------------
Cost of shares redeemed (211,966)
- ----------------------------------------------------------------------------------------- -----------------------
Change in net assets from Fund share transactions 993,053
- ----------------------------------------------------------------------------------------- -----------------------
Change in net assets 974,170
- -----------------------------------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------------------------------
Beginning of period --
- ----------------------------------------------------------------------------------------- -----------------------
End of period (including undistributed net investment income of $16) $ 974,170
- ----------------------------------------------------------------------------------------- -----------------------
</TABLE>
*For the period from December 9, 1993 (start of business) to December 31, 1994.
(See Notes which are an integral part of the Financial Statements)
UTILITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1994*
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.48
- -----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------
Net investment income 0.34
- -----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.19)
- ----------------------------------------------------------------------------------------- -------
Total from investment operations 0.15
- -----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.34)
- ----------------------------------------------------------------------------------------- -------
NET ASSET VALUE, END OF PERIOD $ 9.29
- ----------------------------------------------------------------------------------------- -------
TOTAL RETURN** 1.12%
- -----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------
Expenses 0.60%(a)
- -----------------------------------------------------------------------------------------
Net investment income 4.77%(a)
- -----------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 54.83%(a)
- -----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 974
- -----------------------------------------------------------------------------------------
Portfolio turnover rate 73 %
- -----------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from April 14, 1994 (date of initial
public investment) to December 31, 1994. For the period from December 9,
1993 (the start of business) to April 13, 1994, the net investment income
was distributed to the Fund's adviser.
** Based on net asset value, which does not reflect the sale load or contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
UTILITY FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Insurance Management Series (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-end management
investment company. The Trust consists of five diversified portfolios. The
financial statements included herein present only those of Utility Fund (the
"Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--Listed equity securities are valued at the last sale
price reported on national securities exchanges. Unlisted securities and
short-term obligations (and private placement securities) are generally
valued at the prices provided by an independent pricing service. Short-term
securities with remaining maturities of sixty days or less at the time of
purchase may be stated at amortized cost, which approximates value.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System or to have segregated within the
custodian bank's vault, all securities held as collateral in support of
repurchase agreement investments. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of
each repurchase agreement's underlying collateral to ensure that the value
of collateral at least equals the principal amount of the repurchase
agreement, including accrued interest.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to guidelines established
by the Board of Trustees (the "Trustees"). Risks may arise from the
potential inability of counterparties to honor the terms of the repurchase
agreement. Accordingly, the Fund could receive less than the repurchase
price on the sale of collateral securities.
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
Interest income and expenses are accrued daily. Bond premium and discount,
if applicable, are amortized as required by the Internal Revenue Code, as
amended (the "Code").
UTILITY FUND
- --------------------------------------------------------------------------------
D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its taxable income.
Accordingly, no provisions for federal tax are necessary. At December 31,
1994, the Fund, for federal tax purposes, had a capital loss carryforward
of $9,887, which will reduce the Fund's taxable income arising from future
net realized gain on investments, if any, to the extent permitted by the
Code, and thus will reduce the amount of the distributions to shareholders
which would otherwise be necessary to relieve the Fund of any liability for
federal tax. Pursuant to the Code, such capital loss carryforward will
expire in 2002.
E. WHEN-LSSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
F. OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1994*
<S> <C>
Shares sold 126,510
- -----------------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 1,007
- -----------------------------------------------------------------------------------------
Shares redeemed (22,611)
- ----------------------------------------------------------------------------------------- ----------
Net change resulting from Fund share transactions 104,906
- ----------------------------------------------------------------------------------------- ----------
</TABLE>
* For the period from December 9, 1993 (start of business) to December 31, 1994.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
ADVISORY FEE--Federated Advisers, the Fund's investment adviser (the "Adviser"),
receives for its services an annual investment advisory fee equal to .75 of l%
of the Fund's average daily net assets. The Adviser may voluntarily choose to
waive its fee and reimburse certain operating expenses of the Fund. The Adviser
can modify or terminate this voluntary waiver and reimbursement at any time at
its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with administrative personnel and services. Prior to March 1, 1994, these
services were provided at approximate cost. Effective March 1, 1994, the FAS fee
is based on the level of average aggregate daily net assets
UTILITY FUND
- --------------------------------------------------------------------------------
of all funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company
("FServ") serves as transfer and dividend disbursing agent for the Fund. The
FServ fee is based on the size, type, and number of accounts and transactions
made by shareholders.
ORGANIZATIONAL EXPENSES--Organizational expenses ($17,759) and start-up
administrative service expenses ($31,507) were borne initially by the Adviser.
The Fund has agreed to reimburse the Adviser for the organizational expenses and
start-up administrative expenses during the five year period following December
15, 1993 (date the Fund first became effective). For the period ended December
31, 1994, the Fund paid $1,184 and $2,100, respectively, pursuant to this
agreement.
Certain of the Officers and Trustees of the Fund are Officers and Directors or
Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended December 31, 1994, were as follows:
<TABLE>
<S> <C>
PURCHASES $ 978,884
- ------------------------------------------------------------------------------------------------------ ----------
SALES $ 200,542
- ------------------------------------------------------------------------------------------------------ ----------
</TABLE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Board of Trustees of the Insurance Management Series
and the Shareholders of UTILITY FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Utility Fund (a portfolio of the Insurance
Management Series) as of December 31, 1994, the related statement of operations,
the statement of changes in net assets and financial highlights for the period
ended December 31, 1994. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of the securities owned as of December 31, 1994
by correspondence with the custodian and brokers; where replies were not
received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Utility Fund as of
December 31, 1994, the results of its operations, the changes in its net assets
and its financial highlights for the period ended December 31, 1994 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 10, 1995
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. J. Christopher Donahue
William J. Copeland President
J. Christopher Donahue Richard B. Fisher
James E. Dowd Vice President
Lawrence D. Ellis, M.D. Edward C. Gonzales
Edward L. Flaherty, Jr. Vice President and Treasurer
Peter E. Madden John W. McGonigle
Gregor F. Meyer Vice President and Secretary
Wesley W. Posvar David M. Taylor
Marjorie P. Smuts Assistant Treasurer
G. Andrew Bonnewell
Assistant Secretary
</TABLE>
Mutual funds are not bank deposits or obligations, are not guaranteed
by any bank, and are not insured or guaranteed by the U.S. government,
the Federal Deposit Insurance Corporation, the Federal Reserve Board, or
any other government agency. Investment in mutual funds involves
investment risk, including possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses and other information.
U.S.
GOVERNMENT
BOND
FUND
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1994
Insurance Management Series
[LOGO] FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
458043304
G00846-01 (2/95) [RECYCLE LOGO]
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Investor:
I am pleased to present your annual report for U.S. Government Bond Fund (the
"Fund"), a portfolio of Insurance Management Series. This report covers the
period from December 8, 1993 (the Fund's start of business) to December 31,
1994. The report begins with an investment review by the Fund's portfolio
manager, followed by the Fund's Portfolio of Investments and Financial
Statements.
During the report period, the Fund pursued current income through a portfolio of
U.S. Treasury bills. While the portfolio itself is not guaranteed by agencies of
the U.S. government, all of the securities contained in the portfolio are issued
or guaranteed by such agencies.
At the end of the report period, total net assets in the Fund stood at $1.2
million. Dividends paid to shareholders over the report period totaled $0.27 per
share. The Fund's net asset value stood at $9.99 on the last day of the report
period.
We look forward to keeping you informed about your investment in the Fund and
welcome your questions, comments, or suggestions.
Sincerely,
[SIGNATURE LOGO]
J. Christopher Donahue
President
February 15, 1995
U.S. GOVERNMENT BOND FUND
- --------------------------------------------------------------------------------
ANNUAL REPORT FOR FISCAL YEAR ENDED DECEMBER 31, 1994
MANAGEMENT DISCUSSION AND ANALYSIS
---------------------------------------------------------------------------
U.S. Government Bond Fund (the "Fund") provides shareholders with a
professionally managed portfolio of U.S. government securities. The Fund is
managed for specific maturity levels according to management's assumptions
on market risk and volatility.
The second half of 1994 witnessed short-term interest rates continuing
their move upward in conjunction with the tighter monetary policy of the
Federal Reserve Board. However, the 30-year Treasury bond, buoyed by a
"real" 5% return after inflation, enjoyed a significant bear market
correction that left long-term rates relatively status quo for the final
half of 1994. The impact on the overall U.S. Treasury yield curve was a
significant flattening, the magnitude of which had not been seen since
early 1981.
During the report period, the Fund's total return was 2.62%*. The Fund
outperformed both the Lehman Brothers 5 Year Treasury Bellwether Index**
and the Lipper U.S. Mortgage Funds Average, because it was invested in
short-term U.S. Treasury securities. At this point, U.S. Treasury
securities are favored for their liquidity characteristics.
As 1995 progresses and the Fund continues to pursue asset growth,
management anticipates portfolio selection will stress the mortgage-backed
securities market.
*Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
**This index is unmanaged.
U.S. GOVERNMENT BOND FUND
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN U.S. GOVERNMENT BOND FUND
The graph below illustrates the hypothetical investment of $10,000 in the
U.S. Government Bond Fund (the "Fund") from March 28, 1994 (start of
performance) to December 31, 1994 compared to the Lehman Brothers 5 Year
Treasury Bellwether Index (LB5TB)+, and the Lipper U.S. Mortgage Funds Average
(LUSMF)++.
"Graphic representation "C" omitted. See Appendix."
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
*The Fund's performance assumes the reinvestment of all dividends and
distributions. The LB5TB and the LUSMF have been adjusted to reflect
reinvestment of dividends on securities in the index and average.
+The LB5TB is not adjusted to reflect sales loads, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance.
The index is unmanaged.
++The LUSMF represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling into the
respective categories, and is not adjusted to reflect any sales loads. However,
total return is reported net of expenses or other fees that the SEC requires to
be reflected in a fund's performance.
U.S. GOVERNMENT BOND FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ -------------------------------------------------------------------------------------- ------------
*U.S. TREASURY BILLS--100.5%
--------------------------------------------------------------------------------------
$ 1,250,000 1.05%, 1/5/95 $ 1,249,854
-------------------------------------------------------------------------------------- ------------
TOTAL INVESTMENTS, AT AMORTIZED COST $ 1,249,854+
-------------------------------------------------------------------------------------- ------------
</TABLE>
* The issue shows the rate of discount at time of purchase.
+ Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($1,243,764) at December 31, 1994.
(See Notes which are an integral part of the Financial Statements)
U.S. GOVERNMENT BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ----------------------------------------------------------------------------------------------------
Investments, at amortized cost and value $ 1,249,854
- ----------------------------------------------------------------------------------------------------
Cash 5,735
- ----------------------------------------------------------------------------------------------------
Receivable for Fund shares sold 2,506
- ----------------------------------------------------------------------------------------------------
Interest receivable 557
- ---------------------------------------------------------------------------------------------------- ------------
Total assets 1,258,652
- ----------------------------------------------------------------------------------------------------
LIABILITIES:
- ----------------------------------------------------------------------------------------------------
Payable for Fund shares redeemed $ 478
- -----------------------------------------------------------------------------------------
Accrued expenses 14,410
- ----------------------------------------------------------------------------------------- ---------
Total liabilities 14,888
- ---------------------------------------------------------------------------------------------------- ------------
NET ASSETS for 124,552 shares of beneficial interest outstanding $ 1,243,764
- ---------------------------------------------------------------------------------------------------- ------------
NET ASSETS CONSIST OF:
- ----------------------------------------------------------------------------------------------------
Paid-in capital $ 1,243,770
- ----------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (6)
- ---------------------------------------------------------------------------------------------------- ------------
Total Net Assets $ 1,243,764
- ---------------------------------------------------------------------------------------------------- ------------
NET ASSET VALUE, Offering Price, and Redemption Proceeds Per Share:
($1,243,764 / 124,552 shares of beneficial interest outstanding) $9.99
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
U.S. GOVERNMENT BOND FUND
STATEMENT OF OPERATIONS
PERIOD ENDED DECEMBER 31, 1994*
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -------------------------------------------------------------------------------------------------------
Interest income $ 20,839
- -------------------------------------------------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------------------------------------------------
Investment advisory fee $ 2,605
- -------------------------------------------------------------------------------------------
Administrative personnel and services fee 63,015
- -------------------------------------------------------------------------------------------
Custodian and portfolio accounting fees 55,602
- -------------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 3,522
- -------------------------------------------------------------------------------------------
Legal fees 1,051
- -------------------------------------------------------------------------------------------
Auditing fees 260
- -------------------------------------------------------------------------------------------
Fund share registration costs 501
- -------------------------------------------------------------------------------------------
Printing and postage 10,832
- -------------------------------------------------------------------------------------------
Insurance premiums 3,936
- -------------------------------------------------------------------------------------------
Taxes 20
- -------------------------------------------------------------------------------------------
Miscellaneous 3,456
- ------------------------------------------------------------------------------------------- ----------
Total expenses 144,800
- -------------------------------------------------------------------------------------------
Deduct--
- -------------------------------------------------------------------------------------------
Waiver of investment advisory fee $ 2,605
- -------------------------------------------------------------------------------
Reimbursement of other operating expenses 140,118 142,723
- ------------------------------------------------------------------------------- ---------- ----------
Net expenses 2,077
- ------------------------------------------------------------------------------------------------------- ---------
Net investment income 18,762
- ------------------------------------------------------------------------------------------------------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis) (6)
- ------------------------------------------------------------------------------------------------------- ---------
Change in net assets resulting from operations $ 18,756
- ------------------------------------------------------------------------------------------------------- ---------
</TABLE>
*For the period from December 8, 1993 (start of business) to December 31, 1994
(See Notes which are an integral part of the Financial Statements)
U.S. GOVERNMENT BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1994*
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------------------------------
Net investment income $ 18,762
- -----------------------------------------------------------------------------------------
Net realized gain (loss) on investments ($6 net loss as computed for federal tax
purposes) (6)
- ----------------------------------------------------------------------------------------- -----------------------
Change in net assets resulting from operations 18,756
- ----------------------------------------------------------------------------------------- -----------------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (18,762)
- ----------------------------------------------------------------------------------------- -----------------------
FUND SHARE (PRINCIPAL) TRANSACTIONS--
- -----------------------------------------------------------------------------------------
Proceeds from sale of shares 1,519,262
- -----------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in
payment of dividends declared 11,969
- -----------------------------------------------------------------------------------------
Cost of shares redeemed (387,461)
- ----------------------------------------------------------------------------------------- -----------------------
Change in net assets from Fund share transactions 1,143,770
- ----------------------------------------------------------------------------------------- -----------------------
Change in net assets 1,143,764
- -----------------------------------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------------------------------
Beginning of period 100,000
- ----------------------------------------------------------------------------------------- -----------------------
End of period $ 1,243,764
- ----------------------------------------------------------------------------------------- -----------------------
</TABLE>
*For the period from December 8, 1993 (start of business) to December 31, 1994.
(See Notes which are an integral part of the Financial Statements)
U.S. GOVERNMENT BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1994*
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.99
- -----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------
Net investment income 0.27
- ----------------------------------------------------------------------------------------- -------
Total from investment operations 0.27
- -----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.27)
- ----------------------------------------------------------------------------------------- -------
NET ASSET VALUE, END OF PERIOD $ 9.99
- ----------------------------------------------------------------------------------------- -------
TOTAL RETURN** 2.62%
- -----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------
Expenses 0.48%(a)
- -----------------------------------------------------------------------------------------
Net investment income 3.99%(a)
- -----------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 32.83%(a)
- -----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $1,244
- -----------------------------------------------------------------------------------------
Portfolio turnover rate 0%
- -----------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from March 29, 1994 (date of initial
public investment) to December 31, 1994. For the period from December 8, 1993
(start of business) to March 28, 1994 net investment income was distributed to
the Fund's adviser.
** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
U.S. GOVERNMENT BOND FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Insurance Management Series (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-end management
investment company. The Trust consists of five diversified portfolios. The
financial statements included herein present only those of U.S. Government Bond
Fund (the "Fund"). The financial statements of the other portfolios are
presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--U.S. government obligations are generally valued at
the mean between the over-the-counter bid and asked prices as furnished by
an independent pricing service. Short-term securities with remaining
maturities of sixty days or less may be stated at amortized cost, which
approximates value.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral in support of
repurchase agreement investments. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of
each repurchase agreement's underlying collateral to ensure that the value
of collateral at least equals the principal amount of the repurchase
agreement, including accrued interest.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to guidelines established
by the Board of Trustees (the "Trustees"). Risks may arise from the
potential inability of counterparties to honor the terms of the repurchase
agreement. Accordingly, the Fund could receive less than the repurchase
price on the sale of collateral securities.
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
U.S. GOVERNMENT BOND FUND
- --------------------------------------------------------------------------------
D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its taxable income.
Accordingly, no provisions for federal tax are necessary. At December 31,
1994, the Fund, for federal tax purposes, had a capital loss carryforward
of $6, which will reduce the Fund's taxable income arising from future net
realized gain on investments, if any, to the extent permitted by the Code
and thus will reduce the amount of the distributions to shareholders which
would otherwise be necessary to relieve the Fund of any liability for
federal tax. Pursuant to the Code, such capital loss carryforward will
expire in 2002.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
F. OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31,
<S> <C>
1994*
Shares sold 152,142
- ------------------------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 1,200
- ------------------------------------------------------------------------------------------------
Shares redeemed (38,790)
- ------------------------------------------------------------------------------------------------ ----------------
Net change resulting from Fund share transactions 114,552
- ------------------------------------------------------------------------------------------------ ----------------
</TABLE>
*For the period from December 8, 1993 (start of business) to December 31, 1994.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
.60 of 1% of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive its fee and reimburse certain operating expenses of the Fund.
The Adviser can modify or terminate this voluntary waiver and reimbursement at
any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
administrative personnel and services. Prior to March 1, 1994, these services
were provided at approximate cost. Effective March 1, 1994, the FAS fee is based
on the level of average aggregate daily net assets of all
U.S. GOVERNMENT BOND FUND
- --------------------------------------------------------------------------------
funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company
("FServ") serves as transfer and dividend disbursing agent for the Fund. The
FServ fee is based on the size, type, and number of accounts and transactions
made by shareholders.
ORGANIZATIONAL EXPENSES--Organizational expenses ($20,065) and start-up
administrative service expenses ($31,507) were borne initially by the Adviser.
The Fund has agreed to reimburse the Adviser for the organizational expenses and
start-up administrative expenses during the five year period following December
15, 1993 (date the Fund first became effective). For the period ended December
31, 1994, the Fund paid $1,338 and $2,100, respectively, pursuant to this
agreement.
Certain of the Officers and Trustees of the Fund are Officers and Directors or
Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments for the period ended December 31, 1994 were
all short term securities.
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Board of Trustees of the Insurance Management Series
and the Shareholders of U.S. GOVERNMENT BOND FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of U.S. Government Bond Fund (a portfolio of the
Insurance Management Series) as of December 31, 1994, the related statement of
operations, the statement of changes in net assets and financial highlights for
the period ended December 31, 1994. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1994 by
correspondence with the custodian and brokers. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights present
fairly, in all material respects, the financial position of U.S. Government Bond
Fund as of December 31, 1994, the results of its operations, the changes in its
net assets and its financial highlights for the period ended December 31, 1994
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 10, 1995
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. J. Christopher Donahue
William J. Copeland President
J. Christopher Donahue Richard B. Fisher
James E. Dowd Vice President
Lawrence D. Ellis, M.D. Edward C. Gonzales
Edward L. Flaherty, Jr. Vice President and Treasurer
Peter E. Madden John W. McGonigle
Gregor F. Meyer Vice President and Secretary
Wesley W. Posvar David M. Taylor
Marjorie P. Smuts Assistant Treasurer
G. Andrew Bonnewell
Assistant Secretary
</TABLE>
Mutual funds are not bank deposits or obligations, are not guaranteed
by any bank, and are not insured or guaranteed by the U.S. government, the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including possible loss of principal.
This report is authorized for distribution to prospective investors only
when preceded or accompanied by the Fund's prospectus which
contains facts concerning its objective and policies, management fees, expenses
and other information.
CORPORATE
BOND
FUND
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1994
Insurance Management Series
[LOGO] FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
458043403
G00844-01 (2/95) [RECYCLE LOGO]
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Investor:
I am pleased to present your Annual Report for Corporate Bond Fund (the "Fund"),
a portfolio of Insurance Management Series. This report covers the period from
December 9, 1993 (the Fund's start of business) to December 31, 1994. The report
begins with an investment review by the Fund's portfolio manager, followed by
the Fund's Portfolio of Investments and Financial Statements.
The Fund is managed to help your money pursue income through a diversified
portfolio of lower-rated corporate bonds.
At the end of the report period, total net assets in the Fund stood at $1.5
million. The Fund's net asset value stood at $10.00 on the first day of the
report period and $8.87 on the last day of such period. This decline is due to
the series of well-publicized interest rate increases that caused bond prices to
decline. However, over the report period, the Fund paid a strong distribution to
shareholders totaling $0.76 per share.
We look forward to keeping you informed about your investment in the Fund and
welcome your questions, comments, or suggestions.
Sincerely,
[SIGNATURE LOGO]
J. Christopher Donahue
President
February 15, 1995
CORPORATE BOND FUND
- --------------------------------------------------------------------------------
ANNUAL REPORT FOR FISCAL YEAR ENDED DECEMBER 31, 1994
MANAGEMENT DISCUSSION AND ANALYSIS
---------------------------------------------------------------------------
Rising interest rates dominated the investment landscape in 1994,
generating negative total returns for most fixed income investments.
High-yield bonds were not immune to rising rates. However, the high-yield
market performed better than many other intermediate term fixed income
classes, as strong economic growth lessened investors' concerns about the
credit risk associated with high-yield bonds. Coupled with higher interest
income, this led to better returns for high-yield bonds in comparison to
other fixed income investments.
The Fund made its initial investment in the high-yield market in
February 1994. For the balance of the year, the Fund was negatively
affected by rising interest rates. The Fund outperformed Lipper's
broad-based index for high-yield funds, declining 3.61% from March through
December,* compared to the index which declined 5.84% during that period.**
The Fund benefitted by holding overweight positions in cyclical industries
such as chemicals, steels, and forest products. These cyclical industries
outperformed the overall high-yield market given the strength in the U.S.
economy. The Fund also had no exposure in the casino sector, which
significantly underperformed the overall high-yield market because of
increased competition in many venues. The Fund also had no emerging market
exposure, which was negatively affected by Mexico's late year Peso
devaluation.
Despite these positive factors, the Fund underperformed the Lehman
Brothers Single B Rated Index.* This reflects the Fund's allocation to
higher rated, less volatile BB securities (approximately 15% at year end),
which underperformed B securities. Fund expenses and transaction costs
associated with the Fund's initialization were also contributing factors.
As 1995 begins, the Fund believes that the high-yield market is poised
to pursue attractive relative returns. The U.S. economy remains strong and
foreign economies are beginning to contribute to overall world economic
growth. This may continue to lessen investors' concerns about credit risk.
Also, the Fund believes that the supply/demand imbalance which pressured
the market in the latter stages of 1994 has corrected itself, setting the
market up for a strong start to 1995. Given the outlook, the portfolio
remains overweight in cyclical industries such as steel and forest
products. The risk is that the economy slows in response to higher interest
rates. This would lead to widening credit spreads and most likely poor
relative performance for high-yield bonds.
* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
** This index is unmanaged
CORPORATE BOND FUND
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN CORPORATE BOND FUND
The graph below illustrates the hypothetical investment of $10,000 in the
Corporate Bond Fund (the "Fund") from March 1, 1994 (start of performance) to
December 31, 1994, compared to the Lehman Brother Single B Rated Index (LBSBRI)+
and the Lipper High Current Yields Fund Average (LHCYFA)++.
"Graphic representation "D" omitted. See Appendix."
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
*The Fund's performance assumes the reinvestment of all dividends and
distributions. The LBSBRI and the LHCYFA have been adjusted to reflect
reinvestment of dividends on securities in the index and average.
+The LBSBRI is not adjusted to reflect sales loads, expenses, or other fees that
the SEC requires to be reflected in the Fund's performance. The index is
unmanaged.
++The LHCYFA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling into the
respective categories, and is not adjusted to reflect any sales loads. However,
these total returns are reported net of expenses or other fees that the SEC
requires to be reflected in a fund's performance.
CORPORATE BOND FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- ------------------------------------------------------------------------------------ ------------
CORPORATE BONDS--94.6%
- ---------------------------------------------------------------------------------------------------
BROADCAST RADIO & TV--7.0%
------------------------------------------------------------------------------------
$ 50,000 Allbritton Communication Co., Sr. Sub. Note, 11.50%, 8/15/2004 $ 50,625
------------------------------------------------------------------------------------
50,000 SCI Television, Inc., Sr. Secd. Note, 11.00%, 6/30/2005 50,750
------------------------------------------------------------------------------------ ------------
Total 101,375
------------------------------------------------------------------------------------ ------------
BUSINESS EQUIPMENT & SERVICES--3.3%
------------------------------------------------------------------------------------
50,000 Bell & Howell Co., Sr. Sub. Note, 10.75%, 10/1/2002 47,875
------------------------------------------------------------------------------------ ------------
CABLE TV--3.1%
------------------------------------------------------------------------------------
50,000 Continental Cablevision, Sr. Deb., 9.50%, 8/1/2013 45,500
------------------------------------------------------------------------------------ ------------
CHEMICALS & PLASTICS--8.8%
------------------------------------------------------------------------------------
50,000 Arcadian Partners, L.P., Sr. Note, Series B, 10.75%, 5/1/2005 47,500
------------------------------------------------------------------------------------
50,000 G-I Holdings, Inc., Sr. Disc. Note, 0/11.375%, 10/1/98 30,500
------------------------------------------------------------------------------------
50,000 UCC Investors Holdings, Inc., Sr. Sub. Note, 11.00%, 5/1/2003 49,750
------------------------------------------------------------------------------------ ------------
Total 127,750
------------------------------------------------------------------------------------ ------------
CONGLOMERATES--3.3%
------------------------------------------------------------------------------------
50,000 Sherritt Gordon Ltd., Sr. Note, 9.75%, 4/1/2003 47,750
------------------------------------------------------------------------------------ ------------
CONTAINER & GLASS PRODUCTS--7.1%
------------------------------------------------------------------------------------
50,000 Owens Illinois, Inc., Sr. Amort. Deb., 11.00%, 12/1/2003 52,063
------------------------------------------------------------------------------------
50,000 Silgan Corp., Sr. Sub. Note, 11.75%, 6/15/2002 51,312
------------------------------------------------------------------------------------ ------------
Total 103,375
------------------------------------------------------------------------------------ ------------
ECOLOGICAL SERVICES & EQUIPMENT--3.4%
------------------------------------------------------------------------------------
50,000 Allied Waste Industries, Inc., Sr. Sub. Note, 10.75%, 2/1/2004 48,750
------------------------------------------------------------------------------------ ------------
FOOD & DRUG RETAILERS--4.4%
------------------------------------------------------------------------------------
50,000 *Grand Union Co., Sr. Note, 12.25%, 7/15/2002 19,875
------------------------------------------------------------------------------------
</TABLE>
CORPORATE BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- ------------------------------------------------------------------------------------ ------------
CORPORATE BONDS--CONTINUED
- ---------------------------------------------------------------------------------------------------
FOOD & DRUG RETAILERS--CONTINUED
------------------------------------------------------------------------------------
$ 50,000 Pathmark Stores, Inc., Sr. Sub. Note, 9.625%, 5/1/2003 $ 44,375
------------------------------------------------------------------------------------ ------------
Total 64,250
------------------------------------------------------------------------------------ ------------
FOOD PRODUCTS--2.9%
------------------------------------------------------------------------------------
50,000 Doskocil Cos., Inc., Sr. Sub. Note, 9.75%, 7/15/2000 42,750
------------------------------------------------------------------------------------ ------------
FOOD SERVICES--3.2%
------------------------------------------------------------------------------------
50,000 Flagstar Corp., Sr. Note, 10.875%, 12/1/2002 46,938
------------------------------------------------------------------------------------ ------------
FOREST PRODUCTS--6.8%
------------------------------------------------------------------------------------
50,000 Riverwood International Corp., Sr. Sub. Note, 11.25%, 6/15/2002 51,750
------------------------------------------------------------------------------------
50,000 Stone Container Corp., Sr. Note, 9.875%, 2/1/2001 47,500
------------------------------------------------------------------------------------ ------------
Total 99,250
------------------------------------------------------------------------------------ ------------
HEALTHCARE--3.4%
------------------------------------------------------------------------------------
50,000 Surgical Health Corp., Sr. Note, 11.50%, 7/15/2004 49,375
------------------------------------------------------------------------------------ ------------
HOME PRODUCTS & FURNISHINGS--5.2%
------------------------------------------------------------------------------------
50,000 American Standard, Inc., Sr. Sub. Disc. Deb., 0/10.50%, 6/1/2005 32,250
------------------------------------------------------------------------------------
50,000 Nortek, Inc., Sr. Sub. Note, 9.875%, 3/1/2004 44,000
------------------------------------------------------------------------------------ ------------
Total 76,250
------------------------------------------------------------------------------------ ------------
OIL & GAS--3.2%
------------------------------------------------------------------------------------
50,000 H.S. Resources, Inc., Sr. Sub. Note, 9.875%, 12/1/2003 46,625
------------------------------------------------------------------------------------ ------------
PRINTING & PUBLISHING--3.0%
------------------------------------------------------------------------------------
50,000 Webcraft Technologies, Inc., Sr. Sub. Note, 9.375%, 2/15/2002 43,875
------------------------------------------------------------------------------------ ------------
RETAILERS--3.4%
------------------------------------------------------------------------------------
50,000 Brylane Capital Corp., Sr. Sub. Note, 10.00%, 9/1/2003 49,625
------------------------------------------------------------------------------------ ------------
STEEL--9.6%
------------------------------------------------------------------------------------
50,000 Carbide/Graphite Group, Inc., Sr. Note, 11.50%, 9/1/2003 50,625
------------------------------------------------------------------------------------
50,000 EnviroSource, Inc., Sr. Note, 9.75%, 6/15/2003 43,062
------------------------------------------------------------------------------------
</TABLE>
CORPORATE BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- ------------------------------------------------------------------------------------ ------------
CORPORATE BONDS--CONTINUED
- ---------------------------------------------------------------------------------------------------
STEEL--CONTINUED
------------------------------------------------------------------------------------
$ 50,000 Northwestern Steel & Wire Co., Sr. Note, 9.50%, 6/15/2001 $ 46,000
------------------------------------------------------------------------------------ ------------
Total 139,687
------------------------------------------------------------------------------------ ------------
SURFACE TRANSPORTATION--9.5%
------------------------------------------------------------------------------------
50,000 Sea Containers Ltd., Sr. Note, 9.50%, 7/1/2003 44,750
------------------------------------------------------------------------------------
50,000 Trans Ocean Container Corp., Sr. Sub. Note, 12.25%, 7/1/2004 47,250
------------------------------------------------------------------------------------
50,000 Trism, Inc., Sr. Sub. Note, 10.75%, 12/15/2000 47,000
------------------------------------------------------------------------------------ ------------
Total 139,000
------------------------------------------------------------------------------------ ------------
TELECOMMUNICATIONS & CELLULAR--4.0%
------------------------------------------------------------------------------------
50,000 NEXTEL Communications, Inc., Sr. Disc. Note, 0/9.75%, 8/15/2004 18,000
------------------------------------------------------------------------------------
50,000 USA Mobile Communications, Inc., Sr. Note, 9.50%, 2/1/2004 40,750
------------------------------------------------------------------------------------ ------------
Total 58,750
------------------------------------------------------------------------------------ ------------
TOTAL CORPORATE BONDS (IDENTIFIED COST, $1,543,898) 1,378,750
------------------------------------------------------------------------------------ ------------
**REPURCHASE AGREEMENT--5.8%
- ---------------------------------------------------------------------------------------------------
85,000 J.P. Morgan Securities, Inc., 6.05%, dated 12/30/94, due 1/3/95
(at amortized cost) 85,000
------------------------------------------------------------------------------------ ------------
TOTAL INVESTMENTS (IDENTIFIED COST, $1,628,898) $ 1,463,750+
------------------------------------------------------------------------------------ ------------
</TABLE>
+The cost of investments for federal tax purposes amounts to $1,628,898. The
unrealized depreciation on a federal tax cost basis amounts to $165,148, at
December 31, 1994.
* Non-income producing.
** The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
Note: The categories of investments are shown as a percentage of net assets
($1,456,943) at
December 31, 1994.
(See Notes which are an integral part of the Financial Statements)
CORPORATE BOND FUND
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
GRAND UNION COMPANY
On January 25, 1995, the Grand Union Company announced that it had filed for
Chapter 11 Bankruptcy Protection. Fund management is unable to predict the
outcome or timing of these proceedings.
CORPORATE BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ----------------------------------------------------------------------------------------------------
Investments in securities, at value (identified and tax cost, $1,628,898) $ 1,463,750
- ----------------------------------------------------------------------------------------------------
Cash 1,882
- ----------------------------------------------------------------------------------------------------
Interest receivable 37,304
- ----------------------------------------------------------------------------------------------------
Receivable for Fund shares sold 15,489
- ---------------------------------------------------------------------------------------------------- ------------
Total assets 1,518,425
- ----------------------------------------------------------------------------------------------------
LIABILITIES:
- ----------------------------------------------------------------------------------------------------
Payable for Fund shares redeemed $ 45,458
- -----------------------------------------------------------------------------------------
Accrued expenses 16,024
- ----------------------------------------------------------------------------------------- ---------
Total liabilities 61,482
- ---------------------------------------------------------------------------------------------------- ------------
NET ASSETS for 164,270 shares of beneficial interest outstanding $ 1,456,943
- ---------------------------------------------------------------------------------------------------- ------------
NET ASSETS CONSIST OF:
- ----------------------------------------------------------------------------------------------------
Paid-in capital $ 1,636,503
- ----------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investments (165,148)
- ----------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (12,348)
- ----------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (2,064)
- ---------------------------------------------------------------------------------------------------- ------------
Total Net Assets $ 1,456,943
- ---------------------------------------------------------------------------------------------------- ------------
NET ASSET VALUE, Offering Price, and Redemption Proceeds Per Share:
($1,456,943 / 164,270 shares of beneficial interest outstanding) $8.87
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
CORPORATE BOND FUND
STATEMENT OF OPERATIONS
PERIOD ENDED DECEMBER 31, 1994*
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------------------------
Interest income $ 126,422
- -----------------------------------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------------------------------------------
Investment advisory fee $ 7,966
- -----------------------------------------------------------------------------------------
Custodian and portfolio accounting fees 54,306
- -----------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 8,419
- -----------------------------------------------------------------------------------------
Administrative personnel and services fee 52,398
- -----------------------------------------------------------------------------------------
Legal fees 576
- -----------------------------------------------------------------------------------------
Auditing fees 115
- -----------------------------------------------------------------------------------------
Fund share registration costs 595
- -----------------------------------------------------------------------------------------
Printing and postage 6,835
- -----------------------------------------------------------------------------------------
Insurance premiums 3,950
- -----------------------------------------------------------------------------------------
Taxes 10
- -----------------------------------------------------------------------------------------
Miscellaneous 3,193
- ----------------------------------------------------------------------------------------- ----------
Total expenses 138,363
- -----------------------------------------------------------------------------------------
Deduct--
- -----------------------------------------------------------------------------------------
Waiver of investment advisory fee $ 7,966
- -----------------------------------------------------------------------------
Reimbursement of other operating expenses 124,986 132,952
- ----------------------------------------------------------------------------- ---------- ----------
Net expenses 5,411
- ----------------------------------------------------------------------------------------------------- -----------
Net investment income 121,011
- ----------------------------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis) (12,348)
- -----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (165,148)
- ----------------------------------------------------------------------------------------------------- -----------
Net realized and unrealized gain (loss) on investments (177,496)
- ----------------------------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $ (56,485)
- ----------------------------------------------------------------------------------------------------- -----------
</TABLE>
*For the period from December 9, 1993 (start of business) to December 31, 1994.
(See Notes which are an integral part of the Financial Statements)
CORPORATE BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1994*
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------------------------------
Net investment income $ 121,011
- -----------------------------------------------------------------------------------------
Net realized gain (loss) on investments
($12,348 net loss, as computed for federal tax purposes) (12,348)
- -----------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (165,148)
- ----------------------------------------------------------------------------------------- -----------------------
Change in net assets resulting from operations (56,485)
- ----------------------------------------------------------------------------------------- -----------------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (121,011)
- -----------------------------------------------------------------------------------------
Dividends in excess of net investment income (2,064)
- ----------------------------------------------------------------------------------------- -----------------------
Change in net assets from distributions to shareholders (123,075)
- ----------------------------------------------------------------------------------------- -----------------------
FUND SHARE (PRINCIPAL) TRANSACTIONS--
- -----------------------------------------------------------------------------------------
Proceeds from sale of shares 2,484,492
- -----------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
dividends declared 20,705
- -----------------------------------------------------------------------------------------
Cost of shares redeemed (868,694)
- ----------------------------------------------------------------------------------------- -----------------------
Change in net assets from Fund share transactions 1,636,503
- ----------------------------------------------------------------------------------------- -----------------------
Change in net assets 1,456,943
- -----------------------------------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------------------------------
Beginning of period --
- ----------------------------------------------------------------------------------------- -----------------------
End of period $ 1,456,943
- ----------------------------------------------------------------------------------------- -----------------------
</TABLE>
*For the period from December 9, 1993 (start of business) to December 31, 1994.
(See Notes which are an integral part of the Financial Statements)
CORPORATE BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1994*
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- -----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------
Net investment income 0.75
- -----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (1.12)
- ----------------------------------------------------------------------------------------- -------
Total from investment operations (0.37)
- -----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.75)
- -----------------------------------------------------------------------------------------
Distributions in excess of net investment income (0.01)
- ----------------------------------------------------------------------------------------- -------
Total distributions (0.76)
- ----------------------------------------------------------------------------------------- -------
NET ASSET VALUE, END OF PERIOD $ 8.87
- ----------------------------------------------------------------------------------------- -------
TOTAL RETURN** (3.73%)
- -----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------
Expenses 0.41%(a)
- -----------------------------------------------------------------------------------------
Net investment income 9.11%(a)
- -----------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 10.01%(a)
- -----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $1,457
- -----------------------------------------------------------------------------------------
Portfolio turnover rate 18%
- -----------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from February 2, 1994 (date of initial
public investment) to December 31, 1994. For the period from December 9,
1993 (start of business) to February 1, 1994, the Fund had no public
investment.
** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
CORPORATE BOND FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Insurance Management Series (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-end management
investment company. The Trust consists of five diversified portfolios. The
financial statements included herein present only those of Corporate Bond Fund
(the "Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--Listed corporate bonds (and other fixed-income and
asset-backed securities), unlisted securities (and other fixed-income and
asset-backed securities and/or private placements), and short-term
securities are valued at the prices provided by an independent pricing
service. Short-term securities with remaining maturities of sixty days at
the time of purchase or less may be stated at amortized cost, which
approximates fair market value.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral in support of
repurchase agreement investments. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of
each repurchase agreement's underlying collateral to ensure that the value
of collateral at least equals the principal amount of the repurchase
agreement, including accrued interest.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to guidelines established
by the Board of Trustees (the "Trustees"). Risks may arise from the
potential inability of counterparties to honor the terms of the repurchase
agreement. Accordingly, the Fund could receive less than the repurchase
price on the sale of collateral securities.
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
Distributions are determined in accordance with income tax regulations
which
CORPORATE BOND FUND
- --------------------------------------------------------------------------------
may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.
D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its taxable income.
Accordingly, no provisions for federal tax are
necessary. At December 31, 1994, the Fund, for federal tax purposes,
had a capital loss
carryforward of $12,348, which will reduce the Fund's taxable income
arising from future net realized gain on investments, if any, to the extent
permitted by the Code, and thus will reduce the amount of the distributions
to shareholders which would otherwise be necessary to relieve the Fund of
any liability for federal tax. Pursuant to the Code, such capital loss
carryforward will expire in 2002.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
F. INVESTMENT RISKS--Although the Fund has a diversified portfolio, the Fund
has 94.2% of its portfolio invested in lower rated and comparable quality
unrated high yield securities. Investments in higher yield securities are
accomplished by a greater degree of credit risk and the risk tends to be
more sensitive to economic conditions than higher rated securities. The
risk of loss due to default by the issuer may be significantly greater for
the holders of high yielding securities because such securities are
generally unsecured and are often subordinated to other creditors of the
issuer. The Fund held defaulted securities with a value aggregating
$19,875, representing 1.4% of the Fund's net assets at December 31, 1994.
G. OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1994*
<S> <C>
Shares sold 257,641
- -----------------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 2,295
- -----------------------------------------------------------------------------------------
Shares redeemed (95,666)
- ----------------------------------------------------------------------------------------- ----------
Net change resulting from Fund share transactions 164,270
- ----------------------------------------------------------------------------------------- ----------
</TABLE>
*For the period from December 9, 1993 (start of business) to December 31, 1994.
CORPORATE BOND FUND
- --------------------------------------------------------------------------------
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
.60 of 1% of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive its fee and reimburse certain operating expenses of the Fund.
The Adviser can modify or terminate this voluntary waiver and reimbursement at
any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
administrative personnel and services. Prior to March 1, 1994, these services
were provided at approximate cost. Effective March 1, 1994, the FAS fee is based
on the level of average aggregate daily net assets of all funds advised by
subsidiaries of Federated Investors for the period. The administrative fee
received during the period of the Administrative Services Agreement shall be at
least $125,000 per portfolio and $30,000 per each additional class of shares.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company
("FServ") serves as transfer and dividend disbursing agent for the Fund. The
FServ fee is based on the size, type, and number of accounts and transactions
made by shareholders.
ORGANIZATIONAL EXPENSES--Organizational expenses ($16,313) and start-up
administrative service expenses ($31,507) were borne initially by the Adviser.
The Fund has agreed to reimburse the Adviser for the organizational expenses and
start-up administrative expenses during the five year period following December
15, 1993 (date the Fund first became effective). For the period ended December
31, 1994, the Fund paid $1,088 and $2,100, respectively, pursuant to this
agreement.
Certain of the Officers and Trustees of the Fund are Officers and Directors or
Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended
December 31, 1994, were as follows:
<TABLE>
<S> <C>
PURCHASES $ 1,785,357
- ---------------------------------------------------------------------------------------------------- ------------
SALES $ 237,188
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Board of Trustees of the Insurance Management Series
and the Shareholders of CORPORATE BOND FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Corporate Bond Fund (a portfolio of the
Insurance Management Series) as of December 31, 1994, the related statement of
operations, the statement of changes in net assets and financial highlights for
the period ended December 31, 1994. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1994 by
correspondence with the custodian and brokers; where replies were not received
from brokers, we performed other auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights present
fairly, in all material respects, the financial position of Corporate Bond Fund
as of December 31, 1994, the results of its operations, the changes in its net
assets and its financial highlights for the period ended December 31, 1994 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 10, 1995
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. J. Christopher Donahue
William J. Copeland President
J. Christopher Donahue Richard B. Fisher
James E. Dowd Vice President
Lawrence D. Ellis, M.D. Edward C. Gonzales
Edward L. Flaherty, Jr. Vice President and Treasurer
Peter E. Madden John W. McGonigle
Gregor F. Meyer Vice President and Secretary
Wesley W. Posvar David M. Taylor
Marjorie P. Smuts Assistant Treasurer
G. Andrew Bonnewell
Assistant Secretary
</TABLE>
Mutual funds are not bank deposits or obligations, are not guaranteed
by any bank, and are not insured or guaranteed by the U.S. government, the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any
other government agency. Investment in mutual funds involves
investment risk, including possible loss of principal.
This report is authorized for distribution to prospective investors only
when preceded or accompanied by the Fund's prospectus which
contains facts concerning its objective and policies, management fees, expenses
and other information.
PRIME
MONEY
FUND
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1994
Insurance Management Series
[LOGO] FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
458043106
G00842-01 (2/95) [RECYCLE LOGO]
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Investor:
I am pleased to present your Annual Report for Prime Money Fund (the "Fund"), a
portfolio of Insurance Management Series. This report covers the period from
December 10, 1993 (the Fund's start of business) to December 31, 1994. The
report begins with an investment review by the Fund's portfolio manager,
followed by the Fund's Portfolio of Investments and Financial Statements.
The Fund is managed to help your cash pursue daily income through a diversified
portfolio of money market securities, while providing you with easy access to
your money and seeking a stable share price of $1.00.*
During the report period, the Fund paid dividends of $0.01 per share. At the end
of the report period, total net assets in stood at $552,268.
We look forward to keeping you informed about your investment in the Fund and
welcome your questions, comments, or suggestions.
Sincerely,
[SIGNATURE LOGO]
J. Christopher Donahue
President
February 15, 1995
* No money market mutual fund can guarantee that a stable net asset value will
be maintained. An investment in the Fund is neither insured nor guaranteed by
the U.S. government.
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
The Prime Money Fund (the "Fund") invests exclusively in money market
instruments maturing in thirteen months or less. The average maturity of these
securities, computed on a dollar weighted basis, is restricted to 90 days or
less. Portfolio securities must be rated in one of the two highest short-term
rating categories by one or more of the nationally recognized statistical rating
organizations or be of comparable quality to securities having such ratings.
Typical security types include, but are not limited to, commercial paper,
certificates of deposit, time deposits, variable rate instruments and repurchase
agreements.
During the reporting period, the Federal Reserve Board (the "Fed") continued its
restrictive interest rate stance. The Fed tightened monetary policy by
increasing the Federal Funds target rate from 4.25% to 5.50% over the reporting
period. Despite the continued low inflationary environment, solid economic
growth, growing employment rolls and capacity constraints would point toward
another increase to the targeted Fed Funds rate early in 1995.
Movements in short rates were largely driven by fear of an overheating economy
and the resultant inflationary pressures during the reporting period. From
November 18, 1994 (the day on which the Fund first took in outside money) to the
end of the reporting period, the rate on three month commercial paper rose from
5.9% to 6.3%, reflecting the Fed's restrictive stance.
Due to the small asset size of the Fund, as well as its strict diversification
standards, it was necessary to initially invest in the overnight and treasury
markets.
On December 31, 1994, the net assets of the Fund were $552,268, while the 7-day
net yield stood at 4.16%*. The effective average maturity of the Fund was six
days.
* Performance quoted represents past performance and is not indicative of future
results. Yield will vary.
PRIME MONEY FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ----------- ----------------------------------------------------------------------------------------- ----------
U.S. GOVERNMENT OBLIGATIONS--54.3%
- ------------------------------------------------------------------------------------------------------
FEDERAL FARM CREDIT BANK
-----------------------------------------------------------------------------------------
DISCOUNT NOTES--54.3%
-----------------------------------------------------------------------------------------
$ 300,000 5.75%, 1/6/95 $ 299,760
----------------------------------------------------------------------------------------- ----------
TOTAL GOVERNMENT OBLIGATIONS 299,760
----------------------------------------------------------------------------------------- ----------
U.S. TREASURY OBLIGATIONS--45.3%
- ------------------------------------------------------------------------------------------------------
*U.S. TREASURY BILLS--45.3%
-----------------------------------------------------------------------------------------
250,000 1.05%, 1/5/95 249,971
----------------------------------------------------------------------------------------- ----------
TOTAL U.S. TREASURY OBLIGATIONS 249,971
----------------------------------------------------------------------------------------- ----------
**REPURCHASE AGREEMENT--3.8%
- ------------------------------------------------------------------------------------------------------
21,000 Daiwa Securities America, Inc., 5.90%, dated 12/30/94, due 1/3/95 21,000
----------------------------------------------------------------------------------------- ----------
TOTAL REPURCHASE AGREEMENT 21,000
----------------------------------------------------------------------------------------- ----------
TOTAL INVESTMENTS, AT AMORTIZED COST $ 570,731+
----------------------------------------------------------------------------------------- ----------
</TABLE>
* The issue shows the rate of discount at time of purchase.
** The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investments in repurchase agreements are through participation in joint
accounts with other Federated funds.
+Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($552,268) at December 31, 1994.
(See Notes which are an integral part of the Financial Statements)
PRIME MONEY FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ------------------------------------------------------------------------------------------------------
Investments, at amortized cost and value $ 570,731
- ------------------------------------------------------------------------------------------------------
Interest receivable 7
- ------------------------------------------------------------------------------------------------------ ----------
Total assets 570,738
- ------------------------------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------------------------------------------
Payable for Fund shares redeemed $ 367
- -------------------------------------------------------------------------------------------
Accrued expenses 18,103
- ------------------------------------------------------------------------------------------- ---------
Total liabilities 18,470
- ------------------------------------------------------------------------------------------------------ ----------
NET ASSETS for 552,268 shares of beneficial interest outstanding $ 552,268
- ------------------------------------------------------------------------------------------------------ ----------
NET ASSETS CONSIST OF:
- ------------------------------------------------------------------------------------------------------
NET ASSET VALUE, Offering Price, and Redemption Proceeds Per Share:
($552,268 / 552,268 shares of beneficial interest outstanding) $1.00
- ------------------------------------------------------------------------------------------------------ ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PRIME MONEY FUND
STATEMENT OF OPERATIONS
PERIOD ENDED DECEMBER 31, 1994*
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -------------------------------------------------------------------------------------------------------
Interest income $ 2,909
- -------------------------------------------------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------------------------------------------------
Investment advisory fee $ 287
- -------------------------------------------------------------------------------------------
Administrative personnel and services fees 14,041
- -------------------------------------------------------------------------------------------
Custodian and portfolio accounting fees 11,269
- -------------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 7,763
- -------------------------------------------------------------------------------------------
Fund share registration costs 360
- -------------------------------------------------------------------------------------------
Auditing fees 319
- -------------------------------------------------------------------------------------------
Legal fees 103
- -------------------------------------------------------------------------------------------
Printing and postage 2,083
- -------------------------------------------------------------------------------------------
Insurance premiums 3,928
- -------------------------------------------------------------------------------------------
Taxes 28
- -------------------------------------------------------------------------------------------
Miscellaneous 1,514
- ------------------------------------------------------------------------------------------- ----------
Total expenses 41,695
- -------------------------------------------------------------------------------------------
Deduct--
- -------------------------------------------------------------------------------------------
Waiver of investment advisory fee $ 287
- --------------------------------------------------------------------------------
Reimbursement of other operating expenses 40,948 41,235
- -------------------------------------------------------------------------------- --------- ----------
Net expenses 460
- ------------------------------------------------------------------------------------------------------- ---------
Net investment income $ 2,449
- ------------------------------------------------------------------------------------------------------- ---------
</TABLE>
*For the period from December 10, 1993 (start of business) to December 31, 1994.
(See Notes which are an integral part of the Financial Statements)
PRIME MONEY FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1994*
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------------------------------
Net investment income $ 2,449
- ----------------------------------------------------------------------------------------- -----------------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (2,449)
- ----------------------------------------------------------------------------------------- -----------------------
FUND SHARE (PRINCIPAL) TRANSACTIONS--
- -----------------------------------------------------------------------------------------
Proceeds from sale of shares 1,276,510
- -----------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment
of dividends declared 2,491
- -----------------------------------------------------------------------------------------
Cost of shares redeemed (726,733)
- ----------------------------------------------------------------------------------------- -----------------------
Change in net assets from Fund share transactions 552,268
- ----------------------------------------------------------------------------------------- -----------------------
Change in net assets 552,268
- -----------------------------------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------------------------------
Beginning of period --
- ----------------------------------------------------------------------------------------- -----------------------
End of period $ 552,268
- ----------------------------------------------------------------------------------------- -----------------------
</TABLE>
*For the period from December 10, 1993 (start of business) to December 31, 1994.
(See Notes which are an integral part of the Financial Statements)
PRIME MONEY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1994*
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
- -----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------
Net investment income 0.01
- -----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.01)
- ----------------------------------------------------------------------------------------- -------
NET ASSET VALUE, END OF PERIOD $ 1.00
- ----------------------------------------------------------------------------------------- -------
TOTAL RETURN** 0.50%
- -----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------
Expenses 0.80%(a)
- -----------------------------------------------------------------------------------------
Net investment income 4.26%(a)
- -----------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 71.84%(a)
- -----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 552
- -----------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from November 18, 1994 (date of initial
public investment) to
December 31, 1994. For the period from December 10, 1993 (start of business)
to
November 17, 1994 the Fund had no public investment.
** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
PRIME MONEY FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Insurance Management Series (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-end management
investment company. The Trust consists of five diversified portfolios. The
financial statements included herein present only those of Prime Money Fund (the
"Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--The Trust's use of the amortized cost method to
value its portfolio securities is in accordance with Rule 2a-7 under the
Act.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral in support of
repurchase agreement investments. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of
each repurchase agreement's underlying collateral to ensure that the value
of collateral at least equals the principal amount of the repurchase
agreement, including accrued interest.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to guidelines established
by the Board of Trustees (the "Trustees"). Risks may arise from the
potential inability of counterparties to honor the terms of the repurchase
agreement. Accordingly, the Fund could receive less than the repurchase
price on the sale of collateral securities.
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
D. FEDERAL TAXES--It is the Trust's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its taxable income.
Accordingly, no provisions for federal tax are necessary.
PRIME MONEY FUND
- --------------------------------------------------------------------------------
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
F. OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value). At
December 31, 1994, capital paid-in aggregated $552,268. Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1994*
<S> <C>
Shares sold 1,276,510
- -----------------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 2,491
- -----------------------------------------------------------------------------------------
Shares redeemed (726,733)
- ----------------------------------------------------------------------------------------- ------------
Net change resulting from Fund share transactions 552,268
- ----------------------------------------------------------------------------------------- ------------
</TABLE>
*For the period from December 10, 1993 (start of business) to December 31, 1994.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
.50 of 1% of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive its fee and reimburse certain operating expenses of the Fund.
The Adviser can modify or terminate this voluntary waiver and reimbursement at
any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
administrative personnel and services. Prior to March 1, 1994, these services
were provided at approximate cost. Effective March 1, 1994, the FAS fee is based
on the level of average aggregate daily net assets of all funds advised by
subsidiaries of Federated Investors for the period. The administrative fee
received during the period of the Administrative Services Agreement shall be at
least $125,000 per portfolio and $30,000 per each additional class of shares.
TRANSFER AND DIVIDEND DISBURSING AGENT--Federated Services Company ("FServ")
serves as transfer and dividend disbursing agent for the Fund. The FServ fee is
based on the size, type, and number of accounts and transactions made by
shareholders.
ORGANIZATIONAL EXPENSES--Organizational expenses ($22,431) were borne initially
by the Adviser. The Fund has agreed to reimburse the Adviser for the
organizational expenses during the five year
PRIME MONEY FUND
- --------------------------------------------------------------------------------
period following December 15, 1993 (date the Fund first became effective). For
the period ended
December 31, 1994, the Fund paid $1,495 pursuant to this agreement.
Certain of the Officers and Trustees of the Fund are Officers and Directors or
Trustees of the above companies.
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Board of Trustees of the Insurance Management Series
and the Shareholders of PRIME MONEY FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Prime Money Fund (a portfolio of the Insurance
Management Series) as of December 31, 1994, the related statement of operations,
the statement of changes in net assets and financial highlights for the period
ended December 31, 1994. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1994 by
correspondence with the custodian and brokers; where replies were not received
from brokers, we performed other auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Prime Money Fund as
of December 31, 1994, the results of its operations, the changes in its net
assets and its financial highlights for the period ended December 31, 1994 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 10, 1995
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. J. Christopher Donahue
William J. Copeland President
J. Christopher Donahue Richard B. Fisher
James E. Dowd Vice President
Lawrence D. Ellis, M.D. Edward C. Gonzales
Edward L. Flaherty, Jr. Vice President and Treasurer
Peter E. Madden John W. McGonigle
Gregor F. Meyer Vice President and Secretary
Wesley W. Posvar David M. Taylor
Marjorie P. Smuts Assistant Treasurer
G. Andrew Bonnewell
Assistant Secretary
</TABLE>
Mutual funds are not bank deposits or obligations, are not guaranteed
by any bank, and are not insured or guaranteed by the U.S. government, the
Federal Deposit Insurance Corporation, the Federal Reserve Board,
or any other government agency. Investment in mutual funds involves
investment risk, including possible loss of principal. Although money market
funds seek to maintain a stable net asset value of $1.00 per share, there
is no assurance that they will be able to do so.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Fund's prospectus which contains facts
concerning its objective and policies, management fees, expenses and other
information.
Insurance Management Series Appendix
A. The graphic representation here displayed consists of a legend in the
bottom left corner indicating the components of the corresponding line
graph. Equity Growth and Income Fund (the "Fund") is represented by a
solid line. The Lipper Growth and Income Funds Average is represented by
a broken line. The Standard & Poor's 500 Index is represented by a
dotted line. The line graph is a visual representation of a comparison
of change in value of a hypothetical $10,000 purchase in the Fund,
Lipper Growth and Income Funds Average and Standard & Poor's 500 Index.
The "y" axis reflects the cost of the investment. The "x" axis reflects
computation periods from the Fund's start of performance, February 10,
1994, through December 31, 1994. The right margin reflects the ending
value of the hypothetical investment in the Fund as compared to Lipper
Growth and Income Funds Average and Standard & Poor's 500 Index; the
ending values are $9,930, $9,775 and $9,792, respectively. There is also
a legend directly below the graphic representation which indicates the
Average Annual Total Return for the period ended December 31, 1994,
beginning with the Fund's start of performance of February 10, 1994; the
Average Annual Total Return is (0.70%).
B. The graphic representation here displayed consists of a legend in the
bottom left corner indicating the components of the corresponding line
graph. Utility Fund (the "Fund") is represented by a solid line. The
Standard & Poor's Utility Index is represented by a broken line. The
Standard & Poor's 500 Index is represented by a dotted line. The line
graph is a visual representation of a comparison of change in value of a
hypothetical $10,000 purchase in the Fund, Standard & Poor's Utility
Index and Standard & Poor's 500 Index. The "y" axis reflects the cost of
the investment. The "x" axis reflects computation periods from the
Fund's start of performance, February 10, 1994, through December 31,
1994. The right margin reflects the ending value of the hypothetical
investment in the Fund as compared to Standard & Poor's Utility Index
and Standard & Poor's 500 Index; the ending values are $9,665, $9,185
and $10,082, respectively. There is also a legend directly below the
graphic representation which indicates the Average Annual Total Return
for the period ended December 31, 1994, beginning with the Fund's start
of performance of February 10, 1994; the Average Annual Total Return is
(3.35%).
C. The graphic representation here displayed consists of a legend in the
bottom left corner indicating the components of the corresponding line
graph. U.S. Government Bond Fund (the "Fund") is represented by a solid
line. The Lipper U.S. Mortgage Funds Average is represented by a broken
line. The Lehman Brothers 5 Year Treasury Bellewether Index is
represented by a dotted line. The line graph is a visual representation
of a comparison of change in value of a hypothetical $10,000 purchase in
the Fund, Lipper U.S. Mortgage Funds Average and Lehman Brothers 5 Year
Treasury Bellewether Index. The "y" axis reflects the cost of the
investment. The "x" axis reflects computation periods from the Fund's
start of performance, March 28, 1994, through December 31, 1994. The
right margin reflects the ending value of the hypothetical investment in
the Fund as compared to Lipper U.S. Mortgage Funds Average and Lehman
Brothers 5 Year Treasury Bellewether Index; the ending values are
$10,262, $9,858 and $9,886, respectively. There is also a legend
directly below the graphic representation which indicates the Cumulative
Total Return for the period ended December 31, 1994, beginning with the
Fund's start of performance of March 28, 1994; the Cumulative Total
Return is 2.62%.
D. The graphic representation here displayed consists of a legend in the
bottom left corner indicating the components of the corresponding line
graph. Corporate Bond Fund (the "Fund") is represented by a solid line.
The Lipper High Current Yields Fund Average is represented by a broken
line. The Lehman Brothers Single B Rated Index is represented by a
dotted line. The line graph is a visual representation of a comparison
of change in value of a hypothetical $10,000 purchase in the Fund,
Lipper High Current Yields Fund Average and Lehman Brothers Single B
Rated Index. The "y" axis reflects the cost of the investment. The "x"
axis reflects computation periods from the Fund's start of performance,
March 1, 1994, through December 31, 1994. The right margin reflects the
ending value of the hypothetical investment in the Fund as compared to
Lipper High Current Yields Fund Average and Lehman Brothers Single B
Rated Index; the ending values are $9,639, $9,407 and $9,814,
respectively. There is also a legend directly below the graphic
representation which indicates the Cumulative Total Return for the
period ended December 31, 1994, beginning with the Fund's start of
performance of March 1, 1994; the Cumulative Total Return is (3.61%).
